Disappointing Data Keeps Euro and Canadian Dollar in Range

Canadian Dollar weakens notably in early US session after inflation data missed expectation. Headline CPI slowed to 1.3% yoy in May, down from 1.6% yoy, below consensus of 1.5% yoy. CPI core – common was unchanged at 1.4% yoy, CPI core – median slowed to 1.5% yoy from 1.6% yoy. CPI core – trim slowed to 1.2% yoy from 1.3% yoy. The Loonie has been lifted recently by the hawkish turn of BoC Governor Stephen Poloz. And it tried to resume the rally yesterday after solid retail sales data. Today’s tamer than expected inflation reading could now keep USD/CAD in range in near term. The real test will come when BoC announce rate decision again on July 12, when quarterly forecasts will also be released.

Euro recovers mildly against Dollar today but there is no follow through buying seen so far. Eurozone PMI manufacturing rose to 57.3 in June, up from 57.0 and beat expectation of 56.8. But Eurozone PMI services dropped to 54.7, down from 56.3 and missed expectation of 56.1. Germany PMI manufacturing dropped slightly to 59.3, down from 59.3, but beat expectation of 59.0. Germany PMI services dropped to 53.7, down from 55.4, below expectation of 55.4. France PMI manufacturing rose to 55.0, up from 53.8 and beat expectation of 54.0. But France PMI services dropped to 55.3, down from 57.2 and missed expectation of 57.0.

While the set of data is overall disappointing, Markit chief business economist Chris Williamson noted that "at the moment I’m not too worried about it." And "we may be reaching the stage where growth has been strong for quite a few months and we are hitting a few ceilings in terms of degrees to which firms can expand capacity." Also, he noted that there it’s not clear what the drop in PMI services is about and he "inclined to treat it just as some payback for the sheer strength of growth in recent months,"

In Japan, PMI manufacturing dropped to 52.0 in June, down from 53.1 and missed expectation of 53.4. Looking at some details, new orders dropped to 51.3, down from 53.4, and hit the lowest level since November. New export orders also dropped to 52.5, down from 53.0. Markit noted that "slower growth was signaled in June, with both orders and output rising at the weakest rates since late last year amid reports of a slight softening in market conditions." Nonetheless, "demand is holding up well, and the sector continues to operate within a solid growth range."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1134; (P) 1.1156 (R1) 1.1172; More….

Intraday bias in EUR/USD remains neutral as it’s staying in consolidation in range of 1.1109/1295. There is no confirmation of near term reversal yet. And focus remains on 1.1298 key resistance. Decisive break of 1.1298 key resistance will carry larger bullish implication and extend the whole rise from 1.0339 to 1.1615 resistance next. On the downside, firm break of 1.1109 support will indicate short term topping and rejection from 1.1298. In such case, intraday bias will be turned to the downside for 1.0838 support.

In the bigger picture, the case for medium term reversal continues to build up with EUR/USD staying far above 55 week EMA (now at 1.0932). Also, bullish convergence condition is seen in weekly MACD. Focus will now be on 1.1298 key resistance. Rejection from there will maintain medium term bearishness and would extend the whole down trend from 1.6039 (2008 high). However, firm break of 1.1298 will indicate reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Economic Indicators Update